CGM Supply Chain & Vendor Management 2 — Questions and Answers
Question 1: Which performance metric measures the percentage of customer orders fulfilled completely and on time?
- Inventory Turnover Ratio
- Perfect Order Rate (Correct answer)
- Days Sales Outstanding
- Gross Margin Return on Inventory
Correct answer: Perfect Order Rate
The Perfect Order Rate tracks orders delivered in full, on time, damage-free, and with accurate documentation, serving as a key supply chain health indicator.
Question 2: When negotiating long-term supply agreements, a general manager should prioritize which of the following to protect the organization from price volatility?
- Net-30 payment terms
- Price escalation and de-escalation clauses (Correct answer)
- Extended warranty provisions
- Vendor-managed inventory arrangements
Correct answer: Price escalation and de-escalation clauses
Price escalation/de-escalation clauses link contract prices to agreed indices (e.g., commodity prices, CPI), protecting both parties from unexpected market swings.
Question 3: A make-or-buy analysis helps a general manager decide:
- Whether to produce a product or service internally versus outsourcing it (Correct answer)
- Which raw materials to substitute to reduce costs
- How to allocate capital between departments
- When to liquidate excess finished goods inventory
Correct answer: Whether to produce a product or service internally versus outsourcing it
A make-or-buy analysis compares the total costs and strategic implications of in-house production against purchasing from an external supplier.
Question 4: Safety stock is held primarily to:
- Reduce the unit cost of purchased goods
- Buffer against demand uncertainty and supplier lead-time variability (Correct answer)
- Meet seasonal peak demand forecasts
- Satisfy government stockpile requirements
Correct answer: Buffer against demand uncertainty and supplier lead-time variability
Safety stock acts as a buffer inventory that guards against unexpected spikes in demand or delays in supplier deliveries, preventing stockouts.
Question 5: Which supply chain tier refers to the direct suppliers that provide materials or components to a manufacturer?
- Tier 3 suppliers
- Tier 2 suppliers
- Tier 1 suppliers (Correct answer)
- Tier 0 suppliers
Correct answer: Tier 1 suppliers
Tier 1 suppliers have a direct contractual relationship with the manufacturer, supplying parts or services that go directly into the final product.
Question 6: A general manager conducting a total cost of ownership (TCO) analysis for vendor selection would include all of the following EXCEPT:
- Purchase price of goods
- Incoming freight and handling costs
- Vendor's internal profit margin (Correct answer)
- Quality inspection and rework costs
Correct answer: Vendor's internal profit margin
TCO captures all costs the buying organization incurs (purchase price, logistics, quality, disposal, etc.), but a vendor's internal profit margin is not a cost borne by the buyer.
Question 7: Electronic Data Interchange (EDI) in supply chain management primarily enables:
- Automated machine-to-machine exchange of business documents between trading partners (Correct answer)
- Real-time tracking of delivery vehicles via GPS
- Digital payment processing through banking networks
- Online vendor performance evaluations
Correct answer: Automated machine-to-machine exchange of business documents between trading partners
EDI standardizes the electronic exchange of business documents like purchase orders, invoices, and shipping notices between companies without human intervention.
CGM Supply Chain & Vendor Management 2
Which performance metric measures the percentage of customer orders fulfilled completely and on time?